Do I Need a Trust?

As with any estate planning advice, the best course of action varies from person to person. It is important to talk openly with a professional estate planner about your assets, your family and your desires. There is no “one size fits all” in estate planning.

What is a trust?
A trust is a device to manage property. The owner of property transfers it to the trustee to administer for the benefit of the beneficiary. Generally, the trustee is selected because the beneficiary cannot manage the assets on his or her own. An example is a beneficiary who is a minor.

Will a trust save money by avoiding probate?
One of the reasons you may think you need a trust is that it will save you money by avoiding probate. However, probate isn’t as expensive as you may think. In North Carolina, there is a fee of .004 multiplied by the value of probate assets. However, these fees are limited to a maximum of $6,000, regardless of the size of your estate. Therefore, merely avoiding probate costs is usually not a good reason to have a trust.

What are the downsides to having a trust?
A major problem is that people don’t fully understand the downsides to having a trust. For example, a trust is required to file annual tax returns for its entire term, which costs both time and money to prepare. Also, trusts may face a higher federal income tax. If earnings are retained in the trust and there is more than $12,500 in the trust, then it will have to pay at least 39 percent in federal income tax, not including North Carolina state taxes.

When is a trust a good idea?
There are several valid reasons to have a trust. One is when you have a child or relative that is not good with money and needs someone else to look after them. Many parents have children they want to provide for but do not want to give them a one-time lump sum of money for fear that they will immediately spend the entire sum. Here, the trustee would hold the property and disburse it to the children (beneficiaries) in the manner that the parent directs.
Another reason to have a trust is the second marriage scenario. The spouses want to provide for each other while also providing for their children from a prior marriage. A trust can be structured to accomplish this goal.

These are just a few aspects of trusts that should be considered in estate planning. As always, a tailored fit estate plan to meet your unique needs is crucial to ensure that your desires are fulfilled.

Chriscoe, an attorney with Robert S. Thompson, PA in Southern Pines, can be reached at 910-692-2244.